PowerShares has launched a new fixed-income fund focused on providing exposure to overall bond markets.
ISHARS-CR US AG (AGG): ETF Research Reports
VANGD-TOT BOND (BND): ETF Research Reports
SCHWAB-US AG BD (SCHZ): ETF Research Reports
PWRSH-PB US ABP (PBND): ETF Research Reports
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Zacks Investment Research
PowerShares PureBeta US Aggregate Bond Portfolio PBND tracks the BofA Merrill Lynch US Broad Market Index.
Fund Characteristics
The fund seeks to provide exposure to U.S. dollar-denominated, investment-grade bonds that are in the intermediate-to-long end of the maturity spectrum. It has AUM of $25 million and seeks to provide cheap exposure to the overall bond markets. It charges 5 basis points as fee per year and holds 147 investment-grade bonds in its portfolio. The fund bears lower concentration risk as less than 17% of assets are allocated to the top 10 holdings and is well diversified across sectors.
From a sector look, Treasury, Corporate and Mortgage Backed are the top three allocations of this fund, with 42%, 28% and 26% exposure, respectively.
From a credit-rating perspective, the fund has 70.1% exposure to AAA rated bonds, 5.4% to AA rated bonds, 15.4% to A rated bonds and 9.1% to BBB rated bonds. Therefore, due to its investment-grade focus, the fund bears negligible default risk. However, the fund has an effective duration of 5.94 years and an average maturity of 13.44 years. Therefore, the fund is exposed to interest rate risks.
Although the markets still expect a rate hike in December, the latest Fed minutes have done little to assure investors of one. The argument over whether another rate hike can be supported amid still-low inflation continues, with policymakers unable to reach a consensus. However, the broad consensus is in favor of a rate hike in December.
Moreover, the current favorite to lead the Fed, Kevin Warsh, is seen as less dovish and a friend of the administration, who is expected to expedite the process of deregulation and further rate hikes if he assumes the position currently held by Janet Yellen.
Competition
The fund faces a lot of competition from other investment-grade total bond market funds. Below we discuss a few ETFs that seek to provide exposure to this corner (see all Total Bond Market ETFs here).
Vanguard Total Bond Market ETF BND
This fund has AUM of $35.8 billion and seeks to provide exposure to investment-grade total bond market. It charges 5 basis points in fee per year and holds 8304 bonds in its portfolio. From a sector look, Treasury, Government Mortgage Backed and Industrial are the top three allocations of this fund, with 42.7%, 21.2% and 17.3% exposure, respectively (as of Aug 31, 2017). The fund targets the intermediate to long end of the yield curve as it has an average effective maturity of 8.3 years and an average duration of 6.1 years. The fund has returned 1.1% year to date but has lost 1.6% in a year (as of Oct 12, 2017).
iShares Core U.S. Aggregate Bond ETF (AX:AGG)
This fund has AUM of $50.4 billion and seeks to provide exposure to investment-grade total bond market. It charges 5 basis points in fee per year and holds 6380 bonds in its portfolio. From a sector look, Treasury, Mortgage Pass Through and Industrial are the top three allocations of this fund, with 37.8%, 27.9% and 15.9% exposure, respectively (as of Oct 11, 2017). The fund targets the intermediate to long end of the yield curve as it has a weighted average effective maturity of 8.04 years and an average duration of 5.74 years. The fund has returned 1.5% year to date but has lost 2.0% in a year (as of Oct 12, 2017).
Schwab U.S. Aggregate Bond ETF SCHZ
This fund has AUM of $4.3 billion and seeks to provide exposure to investment-grade total bond market. It charges 4 basis points in fee per year and holds 3391 bonds in its portfolio. From a sector look, Treasury, Mortgage Pass Through and US Corporate are the top three allocations of this fund, with 37.7%, 28.1% and 22.5% exposure, respectively (as of Oct 11, 2017). The fund targets the intermediate end of the yield curve as it has a weighted average maturity of 8.03 years and effective duration of 5.83 years. The fund has returned 0.8% year to date but has lost 1.0% in a year (as of Oct 12, 2017).
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ISHARS-CR US AG (AGG): ETF Research Reports
VANGD-TOT BOND (BND): ETF Research Reports
SCHWAB-US AG BD (SCHZ): ETF Research Reports
PWRSH-PB US ABP (PBND): ETF Research Reports
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Zacks Investment Research
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